This is a hidden column

getTagNameMorningstarCorporate:blog/investingtrends

Finding Footing after the PIMCO Leadership Shakeup

How PIMCO appears to have returned to solid ground after management change

Miriam Sjoblom, Morningstar Research Services LLC

 

Bill Gross’ departure from PIMCO in September 2014 was momentous. It prompted a tsunami of outflows, raising concerns that falling revenues would lead to painful cuts in resources and staff. Although Gross left behind an enormous investment team of talented managers and analysts, there were questions about how well the new PIMCO management structure, led by group CIO Dan Ivascyn, would jell and whether any frictions that arose from the realignment of roles would lead to turnover among PIMCO leadership.

Three years later, we believe a post-Gross PIMCO has found its footing. In our recent paper, we examine the changes the firm has undertaken as it has built upon—and moved beyond—its founder’s legacy. Today, the success of PIMCO’s strategies is less dependent on any one individual. This ascendant culture of teamwork, alongside a diversified (but still fixed-income-focused) business, leave the firm and its clients better off in our opinion.

Key takeaways from our analysis of PIMCO’s leadership and investment strategy

  • As outflows from PIMCO’s Total Return strategy have slowed, strong growth in its Income strategy and moderate growth for the firm’s global corporate-credit and alternatives businesses, have helped turned around its fortunes.
  • PIMCO’s business is more diversified and less dependent on one strategy than it was three years ago.
  • A shakeup in PIMCO’s executive leadership, including the hiring of CEO Manny Roman, doesn’t portend a significant course correction for the firm. But these changes are likely to further nudge the firm toward becoming a bigger alternatives-investing player.
  • PIMCO’s CIOs have stuck around, and the firm has shone a brighter spotlight on the contributions of up-and-coming internal talent. Although its overall investment ranks have modestly shrunk over the past three years, the firm has continued to attract experienced hires, with a bias toward economists and alternatives specialists.
  • The foundation of PIMCO’s investment process hasn’t changed, but the PIMCO leadership team, led by Ivascyn, has sought to bring more quantitative rigor to its decision-making and minimize the influence of behavioral biases.

PIMCO leadership focuses on the future

Such adjustments to the investment process are more evolution than revolution, though, which is consistent with how PIMCO has long operated. The investment team also has more work to do to demonstrate a competitive advantage in some areas—such as in its emerging-markets debt and unconstrained bond strategies.

Overall, we believe PIMCO’s resurgence is impressive. With the distraction of a leadership crisis and outflows behind it, the firm's investment team appears as focused as ever on delivering competitive results for investors in the years ahead. In 2017, we upgraded our PIMCO Parent rating to Positive from Neutral to reflect that assessment.

Read the full research paper “PIMCO Leaves the Past Behind.”

Get My Copy

The Morningstar Analyst Rating is not a credit or risk rating. It is a subjective evaluation performed by the fund analysts of Morningstar, Inc. Morningstar evaluates funds based on five key pillars, which are Process, Performance, People, Parent, and Price. Morningstar's analysts use this five-pillar evaluation to identify funds they believe are more likely to outperform over the long term on a risk-adjusted basis. Analysts consider quantitative and qualitative factors in their research, and the weighting of each pillar may vary. The Analyst Rating ultimately reflects the analyst's overall assessment and is overseen by the Morningstar Analyst Rating Committee. The approach serves not as a formula but as a framework to ensure consistency across Morningstar's global coverage universe. 
 
The Analyst Rating scale ranges from Gold to Negative, with Gold being the highest rating and Negative being the lowest rating. A fund with a Gold rating distinguishes itself across the five pillars and has garnered the analysts' highest level of conviction. A fund with a Silver rating has notable advantages across several, but perhaps not all, of the five pillars- strengths that give the analysts a high level of conviction. A Bronze-rated fund has advantages that outweigh the disadvantages across the five pillars, with sufficient level of analyst conviction to warrant a positive rating. A fund with a Neutral rating isn't seriously flawed across the five pillars, nor does is distinguish itself very positively. A Negative-rated fund is flawed in at least one if not more pillars and is considered an inferior offering to its peers. Analyst Ratings are re-evaluated at least every 14 months.
 
For more detailed information about the Morningstar Analyst Rating, including its methodology, please go to http://corporate.morningstar.com/us/documents/MethodologyDocuments/AnalystRatingforFundsMethodology.pdf
 
The Morningstar Analyst Rating should not be used as the sole basis in evaluating a fund. Morningstar Analyst Ratings are based on Morningstar's current expectations about future events; therefore, in no way does Morningstar represent ratings as a guarantee nor should they be viewed by an investor as such. Morningstar Analyst Ratings involve unknown risk and uncertainties, which may cause Morningstar's expectations not to occur or to differ significantly from what we expected.

The Advisor Toolkit

Get practical behavioral finance tools to help clients avoid common pitfalls.

The Investor Success Project

Read our latest research on how to help investors.